Thursday, 31 May 2012

Bankers' salaries up 37% over the last 4 years since the Banking Crisis.
To get around the regulation of their bonuses, they are switching the money from bonuses to salary. It looks like overall pay has dropped, but not as much as their share prices. FINANCIAL TIMES

Financial companies were forced to remove or amend more than 300 advertisements last year for breaching regulations, but details of the offending promotions have been kept secret. FSA more worried about protecting rippers-off than protecting you!

This leaves consumers with no way of knowing if they were misled. Which?

Shoppers can save 32% or more on fruit & veg by shunning
supermarkets for street markets.

Tuesday, 29 May 2012

Forget whether we should be steering the young into setting up a business in the middle of a recession. A small loan makes no difference to most entrepreneurs, who are driven not by money but by emotional factors.

By Stefan Stern, visiting professor of management practice at the Cass Business School.

You can't keep a good entrepreneur down. Take David Young, Lord Young of Graffham, who as a minister tried to rebrand the Department for Trade and Industry (as was) as the "Department for Enterprise" in the 1980s. In spite of a slight mishap 18 months ago, when he stepped down as a business adviser to David Cameron for talking insensitively about the recession, he has bounced back to speak up for entrepreneurship and the government's new StartUp loan scheme for under-25s. You can see what Margaret Thatcher saw in him, famously musing that "David brings me solutions" while other ministers merely whinged.

Young displays many of the characteristics that mark out a true entrepreneur. He is energetic, he is resilient, he is driven and he doesn't give up. These are the qualities that all business people need when the economy is as troubled as ours is today. The question is: can a new loan scheme for young people really help the economy by making entrepreneurialism more likely to flourish?

That is not at all clear. As Neil Lee, senior economist at the Work Foundation, points out, the failure rate for startups is high, and young people are less likely to be equipped for success than other more seasoned operators. "Successful entrepreneurship requires either a rare talent or skills, which most entrepreneurs only develop through time," Lee says.

While £2,500 may be enough to set up a modest office at home, it won't do anything to boost demand in the part of the economy you are trying to do business in. And while some mentoring is apparently going to be available, it will be a lonely task for a sole trader keeping a business going in this market.

Entrepreneurs are different. They don't take no for an answer. They pursue obsessions, beyond the point where other more conventional or conservative types would back down. They are also, crucially, often not really in it for the money. Their inner drive is emotional and may not have a rational basis. Sometimes entrepreneurs are trying to right a perceived wrong: they grew up in poverty and want to prove themselves, or perhaps they were bullied at school for being eccentric or a slow learner. Maybe a parent was unusually demanding, cruel or remote.

It is well known
that if you say something with sufficient confidence people will believe you.
Facts become unimportant so long as they remain hidden. And you don't get to be a top politician or businessman by letting facts get in the way of your opinions and interests.

One of his
recommendations is that “no fault dismissal” should be introduced into
employment law. Beecroft strongly favours an
“approach which allows an employer to dismiss anyone without giving a reason
provided they make an enhanced leaving payment.” Beecroft goes on to say this
approach would

“produce an instant improvement in performance in a significant part of
the national workforce”.

In plain English, he
reckons a significant part of the national workforce is slacking and could do
with a bit more fear. To be fair, it was a British naval tradition every now
and then execute an admiral to encourage the others, as happened to Admiral John Byng in 1757. Firing an occasional worker for no stated reason would surely encourage the others? And of course, those who have been sacked can always apply to wonga.com for a 4,000% loan (or perhaps not, as with no job and no payday would they actually qualify for a payday loan?).

Blathering
politicians, sticking doggedly to their principle of ‘ignorance is bliss’,
blissfully spout that excessive employment protection is disadvantaging British
industry. The OECD, the club of high income countries, produces various
economic measures and reports, including an index on employment protection. Far
from having excessive protection, UK employment law provides the third weakest
employment rights in the OECD’s survey of nations.

Thursday, 24 May 2012

Signing up to an energy deal that offers ‘added extras’ (e.g. charitable donations, shopping vouchers, free gifts) could swell your gas and electricity bills by hundreds of pounds a year.
Examples include SSE Energyplus Pulse, who will give £10 to the British Heart Foundation if you sign up with them, but it costs £87 more than their own cheapest deal, and £138 more than the cheapest deal on the market.
WHICH?

Dozens of civil servants were paid "off pay-roll" for over 10years, avoiding tax. Danny Alexander, the Chief Secretary to the Treasury, says they will not be named.
A Whitehall review found that 2,000 senior public officials on over £58,200 a year were found to be paid “off payroll”." TELEGRAPH

Landlords cash in on by renting to youngsters and families unable to get on the housing ladder due to banks’
tough lending checks.
Buy-to-let loans account for a record one in eight of all outstanding mortgages. Loans taken out by landlords increased by a
third in the first three months of 2012, compared with the same period last
year. DAILY MAIL

Small firms are victims of a potential mis-selling scandal
which could equal the £9bn payout to victims of the payment protection
insurance debacle.
Banks accused of misleading small firms on the risks of special
Interest Rate Swap deals, driving many healthy businesses out of business. DAILY MAIL

Have you been stung with a £200+ penalty fare or court summons? The consumer watchdog Passenger Focus is challenging rail operators to change the way they deal with passengers who don't have the right ticket. They want consistency, discretion, fairness, accountability, and transparency.

They are also making a direct appeal for passengers to tell them of their experiences.

Ticket to ride?

By Anthony Smith, chief executive of Passenger Focus.

Passenger Focus published today a major investigation into the passenger experience of Unpaid Fares Notices.

No one is in favour of fare dodgers but innocent passengers are being swept up along with those who had no intention to pay.

We have found cases of passengers who left their railcard at home but could prove later they had one, passengers who could not find one of their tickets but had proof of purchase and a ticket for one leg of the journey, and passengers who could not pick up tickets from a machine at a station (because the machines were not working) so were told by staff it was OK to get on. The common factor? No intention to defraud but all these passengers were hit with substantial ‘fines’ and, in some cases, threats of prosecution.

We think the industry needs to start treating its passengers better by giving them a second chance and deal with these situations a bit more sensibly and flexibly.

So what’s happening?

Before boarding a train it is the passenger’s responsibility to ensure that they have with them a valid ticket (or other form of authority to travel) for that train. Unless there were no facilities to buy a ticket or if a train company has put up notices saying you can buy one on board then you risk being pursued for ‘ticketless travel’ if you board without a valid ticket or authority. Train companies that wish to do so have three main options: they can charge the full-price single or return fare, they can, in certain areas, charge a ‘Penalty Fare’, or they can bring a criminal prosecution.

It is hard to put a sense of scale on the issue. In the 2011 calendar year we received just under 400 appeal complaints from passengers who were being pursued for ticketless travel – 13% of our overall total – but we suspect this is just the tip of an iceberg. What we do know is that these cases can have a big impact on passengers and staff. Passengers resent the ‘fines’ levied and the accusation they are cheats, while front-line staff are left to manage the conflict this brings.

At present we only have details of the cases we have received ourselves – there is no information from the industry as to how many fines are issued or prosecutions mounted. We think there should be. Not only will this provide a better sense of scale but, generally speaking, more transparency drives more accountability. Requiring train companies to set out how many penalties are issued, for what, and how many are subsequently overturned may impact on their behaviour.

There is a general misconception that benefits are simply
handouts to the poor. A misconception abused by drum banging politicians promising to starve the “work-shy” back into jobs. They hope to drum up votes by cutting benefit claimants' incomes and booting them out of the more desirable residential areas, with the collateral benefits of lower taxes and posher neighbours for the working man and woman.

The reality is benefits are just as much a subsidy to businesses:

a)
Businesses are able to pay lower wages, which are then topped
up by the benefits system.

b)
Businesses are able to raise prices on the better paid majority of Ripped-Off Britons, knowing that the minority on benefits won’t be pushed into the
disruptive behaviour of the desperate. It avoids untidy stuff like living on the streets,
shop-lifting, and general misappropriation of unaffordable goods and services.

In short, the benefits system holds the heads of the poorest
above water so the rest of us can get a soaking. It boosts profit margins with
higher prices and lower wages, and in addition maintaining labour flexibility by keeping a
pool of the willing but unemployed subsisting on the reserves bench.

Sure, there are undoubtedly many benefits cheats. But the only people who get rich on benefits are employers paying lower wages and landlords charging higher rents.

The evidence for this can be seen in the marginal
tax/deduction rates of those on benefits. In plain English – my ‘marginal
tax/deduction rate’ is the percentage of the last pound I receive that is taken
away by the government. It's taken either as taxes, or as deductions in the money I
receive in the form of benefits and credits.

A
marginal tax/deduction rate of 47% means she pockets 53p in the pound.

If that sounds a bit steep, consider a single parent with
two children, working 30 hours a week earning the National Minimum Wage.

National Minimum Wage pays about £9,120 per year (assuming 50 weeks work a year at £182 per week). For the 9,121th pound, taking into account withdrawal of benefits, she pays a
marginal tax/deduction rate of 95.5%

A
marginal tax/deduction rate of 95% means she pockets 5p in the pound.

This graph, provided by the Excel spreadsheet
wizards at the Department for Work and Pensions, is an excellent depiction of how benefits are withdrawn as employment income increases. Benefits are withdrawn at close to the rate employment earnings increase, leaving the individual little better off by getting a job.

Thursday, 17 May 2012

Major UK-based firms cut secret tax deals with authorities in Luxembourg to avoid millions in corporation tax in Britain.
The BBC's Panorama focuses on GlaxoSmithKline and media company Northern & Shell (owners of Channel 5, the Express, OK! Magazine and others). The secret tax deals were devised by accountancy firm PriceWaterhouseCoopers.BBC

It's the same train at the same time, the difference is you've four tickets covering the journey rather than one and the total price drops from £264 to £40, says Moneysavingexpert.According to Moneysavingexpert.com instead of buying a single ticket from departure to destination, you can save by buying tickets for parts of your journey. "To show how this works, we unearthed this cracking example. For a London to Penzance return, the cheapest ticket was an anytime return at £264. Yet the train stopped in Plymouth, so instead we found four singles. The total cost for those tickets was just £40, a saving of £224:

Phil Clarke, Tesco's chief executive, wrote to 5,000 middle managers warning them annual performance-based rewards would be cut by 80%. Workers are waiting to see if there will be a similar cut in boardroom pay.

Clarke had his base salary pruned to £1.1m last year, but can still receive a maximum total pay package of £6.9m. DAILY MAIL

Government 'failing to get enough homes built,' leading to rising rental levels, growing homelessness, overcrowding, and a sustained property bubble. Number of completed homes in 2011 less than half what government admits is required annually to meet demand.

A building programme would also be a much-needed and powerful stimulus to economic growth GUARDIAN

Saturday, 12 May 2012

Many companies duck and dive to avoid accusations that their charges are too high and their profits excessive. From plumbers to car repairmen to bankers, they all have a perfectly incomprehensible reason why they charge so much. Few do this more than the Big Six energy companies (British Gas, SSE, EDF, Scottish Power, Npower and EON). To expose the degree of profiteering that may be happening the energy companies would have to be transparent about both their operating costs and the profits they make on their wholesale energy sales. Something that has as much chance of happening as a snowball surviving in a working gas-fired boiler. The energy companies know keeping their businesses incomprehensible provides them with most excellent protective insulation from the chill wind of the free market. A mantle they weren't going to shed without a struggle.In a rare show of courage OFGEM, in August 2011, decided to do something about all the obfuscation. OFGEM commissionedBDO, the accountancy firm, to conduct a forensic investigation and make recommendations on how to improve transparency. BDO duly made a set of eight proposals (see table on right).Regrettably, by January 2011 OFGEM's courage was wavering. By May 2012 OFGEM had reverted to the same old obsequious poodle. This act of rank surrender by OFGEM was in spite of the Hills Report on fuel poverty, published by the Department of Energy and Climate Change in March 2012, which stated

"From a health and well-being perspective: living at
low temperatures as a result of fuel poverty is likely to be a significant
contributor not just to the excess winter deaths that occur each year (a total
of 27,000 each year over the last decade in England and Wales), but to a much
larger number of incidents of ill-health and demands on the National Health
Service and a wider range of problems of social isolation and poor outcomes for
young people."Final report of the Fuel Poverty Review, Professor John Hills

OFGEM dropped six out of the eight BDO recommendations, and 'varied' the remaining two.Profits are hidden by the vertically integrated energy suppliers by splitting themselves into two businesses. The Wholesale Business generates electricity, and the Retail Business sells it to domestic and business customers. The Retail Business uses high Wholesale prices to justify high prices to its customers. When buying electricity from itself, a vertically integrated company has every reason to keep Wholesale prices high, so they can claim their Retail profit margin is low and sometimes can even pretend to sell at a loss (and earn a little sympathy).

This is all equivalent to a baker, whose cost per loaf of bread is 50p, selling it to customers for £1, and claiming a margin of 2p. How is this done? The bakery splits itself into two businesses - the baking business at the ovens and the retail business at the counter. The baking business, run by Mr Baker, 'sells' the bread to the counter business, run by Mrs Baker, for 98p - giving Mr Baker a markup of 48p. Mrs Baker then takes £1 from the customer, claiming to have a markup of just 2p. Mr & Mrs Baker then go home with a tidy 100% markup between them - bonuses and cream buns all round!

Thursday, 10 May 2012

Water bills rise above inflation, yet almost a quarter of all water supply is still lost in leaks. Are water firms actually using that extra money to fix the leaks, or make profits? The regulator Ofwat seems incapable of finding out.DAILY MAIL

Paying a living wage is affordable for big companies in UK banking, construction, computing and food production sectors, according to a new report by the think tanks Resolution Foundation and IPPR. The average increase in the wage bill for listed companies in these sectors would be about 1 per cent or less. The living wage is currently set at £8.30 an hour in London and £7.20 outside London. More than 6 million people earn less than the Living Wage - around one in four UK workers.GUARDIAN

High cost "payday" lender Wonga launches business loans service. Loans of up to £10,000 will be available for up to a year but critics say costly borrowing for small firms is 'irresponsible.'GUARDIAN

Thursday, 3 May 2012

[UPDATE NOV 2016: Royal Bank of Scotland at last agreed to set aside£400m to compensate up to 12,000 small business customers that it “allegedly
mistreated” in the wake of the financial crisis. Leaked RBS documents confirm
that their "Project Dash for Cash" incentivised staff to search for
companies that could be restructured and have their assets sold off, or have
their interest rates bumped up. The documents also show that where business
customers had not defaulted on their loans, bank staff could find a way to
"provoke a default". In 2014 RBS said the department responsible, the
Global Restructuring Group, was not there to make a profit. Weeks later, as the
scandal was exposed, the then RBS chairman Sir Philip Hampton was forced to
admit that it was.]

To understand a rip-off of this scale, designed to be incomprehensible to customers, regulators and lawmakers, you need an insider's insight. Provided by our guest authorHonestly Banking, the undercover banker.

At
Honestly Banking we wanted to have a look inside the workings of Swaps,
Hedging, Caps and Collars and throw some light into this obscure and
complicated world. There has been a remarkable amount of media interest around the Swap mis-selling scandal. Inevitably it is hard to capture the real
complexities of this involved area without over simplifying matters or getting
highly technical.

A brief background: Banks have been selling Interest Rate
Derivatives under the guise of ‘risk management’ for many years, firstly to big
corporates, then to smaller companies and then when the greed got the better of
them to anyone they could. You may think this sounds a lot like the sub-prime
mortgages. Back then banks sold mortgages to unsuitable clients. Now they are
selling swaps to unsuitable clients. Different product, same motivation – a
quick profit.

With lower Interest Rates many people are discovering
that they have been sold something that actually increases their risk.
Additionally the banks have not been sticking to the rules and have been
profiteering at the expense of small businesses and individuals. This is a
completely different order of magnitude to PPI mis-selling. Homes, businesses,
farms and livelihoods are being lost. Families are being ripped apart. Barclays have tried to gag their clients from even talking to the regulator, the FSA, about it.

Banks have developed this area into a highly profitable
multi-million pound industry. It’s so profitable they have set up many regional
sales centres to peddle their wares. They are staffed typically by smooth
talking ‘risk advisors’ who bamboozle the unsuspecting client into something
that will possibly be the worst decision of their lives.

Interest Rate Hedges (we will call them Hedges for
brevity) fall into two main sorts. Those made of barriers and Swaps. They are
all constructed out of Derivatives called Interest Rate Options. We will
concentrate on the barrier type in this article as Swaps are really a series of
barriers.

The
simplest and most effective ‘Hedge’ is the Interest Rate Cap. Here the client never pays more than the Cap
level that they can choose to match their needs best. They get the full benefit
from any falls in Interest Rates and there’s no break (penalty for ending the
contract) cost as the premium is paid straight away up front. It’s a bit like having a cap on your mortgage interest rate.
Remember, no SME buys a hedge to make a profit – they just want to get protection
from surprise interest rate hikes. It’s also the one banks sell the least of
and are mostly likely not to mention to you. The simple reason is they make the
smallest profit on them.

One in four in David Cameron's Business Advisory Group avoids tax. Includes BT chairman Sir Michael Rake, Sir James Dyson, Chairman of Google Eric Schmidt, CEO of WPP Sir Martin Sorrell. DAILY MAIL

"Slow-motion bank robbery" say MPs. Banks pay savers virtually no interest, whilst inflation stays high. By still charging much higher interest on loans, the banks have made £43bn since the crisis began.DAILY TELEGRAPH

Wealth of UK's richest 1,000 has grown in the last year.DAILY MAILRover workers get £3 redundancy pay compensation after seven-year battle. Owners and MD pocketed £42m after buying Rover. When Rover collapsed they set up a fund telling staff it will have 'millions' for them. GUARDIAN